Many wrongful dismissal cases settle because the employer agrees that some of the settlement funds will be allocated to non-taxable damages such as general damages for an alleged violation of a human rights statute. Doing so doesn´t cost the employer any additional monies but the employee receives more net money. For example, doing so can avoid the employee’s obligation to repay employment insurance (EI) benefits received during the applicable notice period.
This blog discusses how Employment Insurance (EI) benefits or CERB benefits are taken into account when calculating wrongful dismissal damages during the COVID 19 pandemic.
In a recent case a judge concluded that CERB benefits received during the applicable notice period should be deducted when calculating wrongful dismissal damages. This case distinguished another case that came to the opposite conclusion so at the moment there is considerable legal uncertainty as to whether CERB benefits should be deducted from damages otherwise payable to an employee in a wrongful dismissal action. Given the significance of this issue, I suspect these conflicting trial decisions will be considered by an appeal court. Stay tuned.
Employment Insurance benefits
Employers and employees both pay into the EI system which is intended to be self-financed. It is funded by way of a payroll tax; employers and employees both contribute. In 2021, employees contribute up to $889.54 and employers contribute up to $ 1,245.36 for each employee. When calculating the amount of EI benefits an employee is entitled to receive the maximum yearly annual earnings is $ 56 200 which means a maximum weekly EI benefit is $ 595.
Before the COVID pandemic hit Canada, an employee was obliged to repay some EI benefits received if they subsequently received termination pay. To ensure this happens, some employers require an employee to obtain a notice of debt from Service Canada setting out the amount of EI that is required to be repaid before paying out any settlement funds and the employer pays Service Canada directly.
As a result of an Interim Order in relation to the EI Act for EI benefit periods starting after September 27, 2000 until September 25, 2001 an employee is not required to repay EI benefits.
Canada Emergency Response Benefit (CERB)
CERB was introduced in the spring of 2020 as an income security measure for some people and was in effect from March 15 to September 26, 2020. It was much easier to qualify for CERB payments than for EI benefits. Recipients received $ 2000 per month for a maximum number of months regardless of how much the person was earning. As a result, many part-time low paid employees were better off financially not working and as a result many service industry employers are having a hard time finding employees. On September 27, 2021, CERB was replaced by Canada Recovery Benefit (CRB) and under this program an employee is entitled to receive $500 a week for up to 38 weeks.
Neither employees nor employers paid directly for CERB benefits. There is no self-funding system like EI or the workers compensation system in Ontario.
The CERB legislation did not explicitly state that an employee is required to repay benefits if an employee subsequently receives termination pay for the same period of time. To further complicate matters, during this period of time the federal government told people to apply for CERB using the CERB application process even if they were eligible for EI.
Bottom line: Given the legal uncertainty surrounding the issue of whether a judge will deduct CERB payments when calculating wrongful dismissal damages I suspect employee counsel will continue to allege their clients are owed non-taxable damages like human rights damages, aggravated and punitive damages. If all settlement funds can be allocated to non-taxable damages then this issue can be avoided. In my experience, however, employers will not allocate a large amount of a settlement to non-taxable damages unless there are facts to justify such an allocatrion. So the appeal courts will need to provide employees and employers with clearer direction on this issue.
Doug MacLeod, MacLeod Law Firm
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